Term Paper: Accounting Congo Limited Budget (in 1000's) Cash

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Congo Limited Budget (in 1000's)

Cash Balance from prev. month

Cash Sales

Credit Sales

Purchase for resale

Salaries and Wages (PAID in the MONTH EARNED)


Provision for Credit Losses

(Assumes 5% of credits will become bad debt and uncollectable)

Cash discount for goods purchased ( 2.5% discount on month following purchase)

Property, Plant, and Equipment (2 Vans at $90,000 each paid for in APR)

Unpaid Taxes

Bank balance

Budgeting is an essential function any business to perform. As such, I agree with the statement that management will be rendered ineffective without the current use of budgeting within their monthly activities (Cliche, 2012).

To begin, budgeting serves as a means of prioritizing business activities. In many instances, business has limited amounts of resources and a seemingly infinite amount of methods in which to deploy them. For large, multinational corporations the problem is compounded as various departments jockey to receive the maximum amount of funding for their own projects. By budgeting properly, management can better ascertain which projects will be fully funded and which project will not be funded. This prioritizing ensures that the business enters markets or engages in activities in which it has relative competitive advantages in. Furthermore, through proper capital budgeting. Management can ensure that they receive the largest return on their investment in relation to the overall level of risk involved. Capital budgeting is a very important function to almost every business in the developed world. Managers, CEO's and shareholders must generate value through the use of capital budgeting. This is particularly true as financial resources are limited in both scope and function. As such, companies must be very vigilant in how they allocate capital to certain projects. As indicated below, there are many methods in which to evaluate the future cash flows of a business. Four very common capital budgeting methods are NPV, PI, IRR, and the payback method. Each form has its own relative strengths and weaknesses. By recognizing these aspects, managers and shareholders alike will be in a better position to allocate capital effective (Varshney, 2010).

Now without capital budgeting, management may be inclined to accept projects or allocate funds to unproductive means. For smaller companies, this can be particularly detrimental as they don't now possess the needed capital to recovery from budgeting mistakes. This occurs constantly in business, as management attempting to expand their own domain, undertake expensive and costly projects. These projects ultimately have to be written down, divested, or sold at an extreme discount. Although budgeting would not eliminate these occurrences altogether, it does help management prioritize its activities. For one, budgeting and prioritization have a very symbiotic relationship in regards to the underlying business strategy of a firm. Financial budgeting, as indicated above is simply the allocation of available resources to achieve a desired rate of return. With prioritization, management must consider a litany of possible scenarios and outcomes in regards to their investments. Typically, the more risk inherent within a business strategy the larger the financial return should be. In practice however, management, in good faith, can take excessive risk without a corresponding high rate of return. Therefore, through prudent financial planning, management must be conservative in their subsequent assessment of risk and the prevailing macroeconomic environment. Budgeting has a very profound role in this assessment. One tool to aid in this process, management can use the DCF model. The DCF model provides the present value of future cash flows. Depending on the prevailing market rates, management can make a very informed decision in regards to financial planning. As with the budget of Congo Limited, they invested $180,000 in vans for underlying business operations. Management must be able to appropriate ascertain the return provided by the vans as relates to the business. In some instances, there is an opportunity cost of purchasing the vans. Management of Congo for example could have used the cash to open a warehouse of pay a dividend to shareholders, or simple save the money. By allocated the capital to vans, the management of Congo is asserting that the vans will generate more money for the business than any of the above alternatives. Now, many concepts in budgeting rely on management judgment. This judgment may lead… [END OF PREVIEW]

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Accounting Congo Limited Budget (in 1000's) Cash.  (2013, June 3).  Retrieved July 17, 2019, from https://www.essaytown.com/subjects/paper/accounting-congo-limited-budget-1000/7573841

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"Accounting Congo Limited Budget (in 1000's) Cash."  Essaytown.com.  June 3, 2013.  Accessed July 17, 2019.